Mergers & Acquisitions Investment Banking: What You Do Every Day

One question I’ve been getting lately is, “What do you actually do in XYZ group at a bank?”

And since everyone still wants to be in Mergers & Acquisitions, “M&A” is the most commonly requested group.

I had assumed that if you found a site like this, you would just naturally know what you do in each group.

But I was wrong – because I keep getting this question over and over.

So today, we’ll delve into this and answer definitively the following question:

What do you actually do in Mergers & Acquisitions?

Pitching vs. Execution

There are 3 things you do as a junior investment banker: pitching for deals (going to a prospective client and making a long presentation that says, “WE’RE GREAT, HIRE US!”), executing deals (taking a client to potential buyers and saying, “BUY OUR CLIENT, PLEASE!”), and completely random stuff that has nothing to do with anything (when your MD calls you to pick up his dry cleaning, for example).

Generally, you do more of the “execution” part in M&A and less of the pitching / random stuff.

You might think that would make your life less mundane, but that’s not quite true –there’s a lot of grunt work no matter what you do.

In M&A, the grunt work is more of the “Update our conversations with each buyer in this really long spreadsheet” variety rather than the “Make our bank #1 for EVERYTHING!” variety that you get when “crafting” pitch books.

The Role of the Executioner

If you’re working in an M&A group, there are two types of deals you’ll work on: sell-side M&A deals and buy-side M&A deals (executing your enemies is an entirely different line of work best left to Patrick Bateman).

Sell-Side M&A Deals

These happen when a client comes to you and says, “We want to sell our company and make a lot of money – can you help us?”

Sometimes they know who they want to sell to – while other times they have absolutely no clue and they are desperately seeking a means to avoid embarrassment or continuing to run the company.

If a private equity firm owns the company, the PE firm pulls all the strings and decides when to sell; otherwise, the Board of Directors is in charge (not the management team – except for the CEO, who may have some input).

Another common motivation to sell lately has been, “Help! We’re about to go bankrupt and cause a massive black hole to form in our wake – can you save us before we go belly-up?”

This is called a “distressed sale” and although it’s technically an M&A deal, it works a bit differently – so we’ll come back to it in future articles.

Buy-Side M&A Deals

In these deals, the client comes to you and says, “We want to buy a company. Can you help us do it / help us finance it?” (Most often they only care about the last part).

Sometimes they know exactly what they want to buy, or are already in discussions with the seller; other times they have no clue and just want you to search hundreds of companies for them and do all the work while they sit back and contemplate how to proceed.

This happens all the time with huge conglomerates where it takes 18 months to decide how to allocate the paper clip budget; smaller companies move more quickly, but they are also less inclined to acquire other companies in the first place – especially in the current market.

Lock Onto Your Target

So what do you actually do, and how does the entire process work?

It depends on whether the transaction is targeted (the buyer and seller are already talking, or they are focused on just 1 buyer/seller) or broad (they want to be shown to a large group of potential buyers or they want to look at a big group of potential acquisitions).

With a broad process, you go out to lots of different buyers/sellers and try to get interest from as many as possible – and then you run some kind of auction to get the best price possible for your client (in a sell-side deal, anyway).

When it’s targeted, you’ll still try to get bids from other parties (or multiple potential acquisitions lined up if it’s a buy-side deal), but there is less “process” work and more negotiating and back-and-forth with one party.

There’s always some overlap, and one type of deal can easily turn into the other.

When you’re dealing with huge ($10B+ market cap) companies, you’re more likely to see targeted processes because the pool of feasible buyers and sellers is very small; but when you’re representing a smaller company, or a private equity-owned company, it’s more likely to be a broad process.

Ok, But What Do You Actually Do As an Analyst or Associate?

As you might have surmised, there are 4 types of deals: targeted sell-side, broad sell-side, targeted buy-side, and broad buy-side.

Unless you want to read 30,000 words, I can’t go into each one in an extreme level of detail – but here’s a quick summary:

Targeted Sell-Side

In this type of deal, the buyer and seller are usually talking – and your role as an investment banker is to get a higher price for your client.

How do you do this?

Well, you can try to argue really hard with the buyer and make some nasty threats. But that doesn’t work well unless you have actual leverage – namely, an offer from another party.

90% of the time with a targeted sell-side deal, you go out quickly and stealthily to a small number of other buyers and attempt to get a better offer on the table. So here’s what you’d do as an Analyst/Associate (usually the Analyst does the work and the Associate checks the work):

2. Watch while the senior bankers (usually the Managing Director) call the small set of potential buyers they’ve thought of or already know.

3. As they get back to you, you update a spreadsheet with their responses and send it out in periodic updates to your client. When the (new) buyers ask for material (“due diligence requests”) you send them what you have.

4. Meanwhile, you try to keep the original buyer at bay and give the illusion that nothing deceptive is going on – and you process their due diligence requests: the buyer asks for something, and you have to go through your client’s poorly organized files, find it, and then send it… or beg for it if it’s not there.

5. The senior bankers give the buyers you’ve contacted “a deadline” and to see if they can get a superior offer from any of them – if they get one, they then bring it to the original buyer and say, “We have another, better, offer – pay up or else!”

6. If your team manages to get multiple offers, the bankers lock the buyers in a bidding war until someone emerges victorious and proceeds with acquiring your client.

7. If not, your team continues talking to the original buyer and they try to negotiate improved terms (sometimes the buyer will cave on terms like reps and warranties and treatment of options, if not the price).

What type of work would you actually do as a junior banker in this kind of deal?

1. Update the buyer list with notes on what’s happening and the latest news. This is probably your most important duty.

2. Process due diligence requests from the buyers – this means you look for stuff when they ask for it, and if you don’t have it, you then ask your client for it… and then you get it, and send it back to the buyers. Efficiency at its finest!

3. Occasionally you’ll do some valuation and modeling work – most often you do this to “justify” what your MD thinks your client is worth, or to show how the acquisition would instantly double the buyer’s EPS. The numbers and modeling work you do here are somewhere between “complete lies” and “creative non-fiction.”

There’s less technical work than you might have expected – that’s just how banking is.

Despite all the hoopla over “learning financial modeling,” you don’t spend the majority of your time doing any kind of modeling work – even in a more technical group, like M&A.

Broad Sell-Side (Auction)

This is not too different from the targeted sell-side deal above. The main difference is that you go out to a broader group of potential buyers, and you do it much earlier on – you don’t wait until you have a potential buyer at the table first. Here’s a quick outline:

1. Meet with client and develop “marketing” materials. Every bank and group is different, but usually these consist of a “short” document (usually called an “Executive Summary”), a longer document (“Confidential Information Memorandum” or “Offering Memorandum”), and a PowerPoint presentation (“Management Presentation”).

2. Depending on the deal and client, you may develop your own operating model for it showing where the revenue and expense numbers in each year come from. You might also do a valuation as backup material in case the question of price arises.

3. Once you’ve finished at least some of the marketing materials, your team starts approaching the potential buyers – usually the senior bankers and client come up with this list, but sometimes you get to “contribute” (i.e. they tell you “Go find more buyers in such-and-such category”).

4. As the potential buyers start expressing interest, you execute NDAs (“Non-Disclosure Agreements” – this means sending a Word document back-and-forth until everyone stops arguing) and pass along information requests – usually the buyers want to see your client’s financial details, more about its products/services, and more on its customers.

5. At some point you set a “bidding deadline” and the interested buyers must submit bids with their prices and other terms. Usually the “other terms” are not well-defined at this stage.

6. The senior bankers and your client pick “the winners” (mostly based on price if it’s the first round), and they advance to the next round of bidding.

7. At each round, you share more and more information with the potential buyers, and narrow down the list. This can last for many rounds, but 2 rounds is probably the most common – more than that gets excessive, even for Patrick Bateman.

8. When bidding is over, the “winner” emerges and your team negotiates the purchase agreement that spells out details of how your client will be acquired.

So it’s not too much different from the targeted sell-side process, but it is more drawn out – you create more marketing materials, speak with more buyers, and do a lot more administrative work.

It’s hard to say whether there’s more or less modeling work; I would say there’s more administrative work and more modeling work, so basically there is just more work in general.

Targeted Buy-Side

A targeted buy-side deal is almost the same as a targeted sell-side deal, except you don’t go out and solicit bids from other potential buyers… since you’re representing the buyer.

In many targeted buy-side deals, a bank is close to useless – because no matter how well your MD can “negotiate,” ultimately the seller has all the leverage.

In most targeted buy-side deals, the bank’s true role is to provide the financing. Here’s what a typical process might look like:

1. Client contacts your MD and asks him to represent them in an acquisition.

2. Your team goes in to “analyze” the situation and provide recommendations – these recommendations usually come in the form of how much they should pay for the seller and what kind of terms they should negotiate for – as well as what the financing should look like (how much debt they should use, the number of tranches, interest rates, etc.).

3. As a result, you as the junior banker will most likely do a valuation of the seller and a merger model for the combined entity.

4. In the background, your team starts communicating with the Leveraged Finance team and sending them information on the buyer and seller to see what kind of debt they could provide (Note: In the current market environment debt issuances don’t really happen except for small deals).

5. Most of the value your bank provides lies in the financing – so your team spends a lot of time communicating with the company telling them about the terms and advising them on what price they should push for.

6. If all goes well, the deal goes as planned and your client acquires the other company using the debt that your bank has raised.

Sometimes your bank doesn’t actually do a financing – in that case, you mostly just do valuations of the buyer and seller, and create “updates” showing what the acquisition would look like at different prices.

For a truly targeted buy-side deal, you do less administrative work because you are only tracking discussions with one party – the seller. There is some back-and-forth with the Leveraged Finance team as they request information, but it’s way less than in sell-side deals.

You’ll notice that I did not give much detail on the debt process, and that is because as an M&A banker you are usually not too involved with this.

Broad Buy-Side (Complete Waste of Time)

Otherwise known as a complete waste of time, a broad buy-side “deal” (and I use the term “deal” loosely) happens when a company – usually a large one – comes to you and says, “We want to acquire… something. Help us find it.”

So here’s the process:

1. Client comes to you with a vague idea of what they want.

2. You, as the junior banker, dig through mounds of information, research, and internal databases to locate potential acquisitions.

3. You create detailed “profiles” for each potential acquisition, and then show them to your client.

4. They give a vague response, and/or tell you to look for a completely different type of company.

5. You continue to pore through research and information, looking for the needle in the haystack – the one company that they might actually want to acquire.

6. This cycle continues indefinitely until your client decides that they actually want to speak with one of the companies you’ve found and/or possibly acquire them at some point in the future (the bigger your client, the longer and more painful this process is).

You’ll notice that I don’t have a “conclusion” here, and that’s because most broad buy-side deals turn into long, drawn-out processes that never go anywhere.

You will also notice that I have almost nothing about any technical work – and that’s because you very rarely do any “modeling” for this type of deal.

Sometimes, you may do a quick and simple valuation of one of these potential acquisitions or you might run a merger model to show what the combined entity would look like.

But you spend most of your time looking for that needle in the haystack – so it’s not a very fun process for you, unless you love to search through databases and read research.

I recommend that you stay far, far, away from these types of deals and gravitate toward sell-side M&A and targeted buy-side M&A.

Most senior bankers also know that broad buy-side processes are a waste of time, so they rarely take them on unless they’re doing someone else a favor (which is usually why they happen in the first place, of course).

Murders & Executions

So that is what you actually do in Mergers & Acquisitions: administrative work, research, sending updates to your team, and occasionally running some models in Excel.

If you’re really lucky and your deal actually closes when you’re still at the bank, you might also get to go to the closing dinner, which is the most fun part of the entire process.

About the Author

Brian DeChesare is the Founder of Mergers & Inquisitions and Breaking Into Wall Street. In his spare time, he enjoys memorizing obscure Excel functions, editing resumes, obsessing over TV shows, traveling like a drug dealer, and defeating Sauron.

It appears that megers and aquisitions is similar to the realm of sales? Is there any truth to this inquiry?
In addition, does sales experience help boost an investment banking resume due to a correlation with investment banking M&A?

Hi So i don’t fit the mould.. over 30. pissed almost 10 yrs of my life away studying a degree i didn’t want to do.. never finished. Finally decided to wake up. Went back to school, did a degree in Accounting & Fin. Management in the UK.. Got a 1st Class and won almost every prize..
Been applying for corporate finance. Finally got a good call back for a graduate coverage & corporate finance role (emerging market country) in a big bank.. Interview in 2 days so here’s my question(s)..

Will they ask about my age?
How fast do you think i can progress after this 1st year?
Do you think being older will make me more eligible for promotions? perhaps the top guys will see me more as a buddy than a monkey analyst?
Do you think this sort of bank will be involved in exciting deals?
Off to biz school after a year…should i mention this in the interview?
Is this type of corporate finance role as described below considered M&A?
Will a role in PwC as a graduate management consultant provide more experience with regards to learning about companies and how they can acquire allocate financing?

Rotation 2 – Risk (three months)
You’ll learn about our credit risk policies and procedures, as well as the services and products we offer. You’ll also collaborate with colleagues to produce credit and portfolio analyses.

Rotation 3 – Front Office (six months)
You will be partnered with senior teams and work on the origination and execution of deals and pitches, including business modelling, valuations regulations, capital structures and needs.

David, yes they will probably figure out how old you are looking at your resume.
Progression – depends on your firm and you. http://www.mergersandinquisitions.com/myth-career-path/
No I don’t think being older will make you more eligible for promotions unless you have more to offer on the table. Otherwise it can work against you if you are perceived not as hard working as others.
Probably not, but it also depends on what you mean by exciting.
Probably don’t want to mention off to business school.
No, not M&A.
Maybe, though the rotation 3 sounds better to me.

First, I would like to congratulate you on such a great website! The articles published here are very insightful and have provided me with great information so far.

I’ve been interested in finance for a few years now but primarily it was more on the consumer banking side of the industry. In the last few months however, my eyes have been opened to a world of opportunities which I’m very excited to explore. I’m still doing my research and feel I have a lot more to learn about the different business areas before I can take a step in a chosen direction.

I would really appreciate some advice on a couple of points:

My background:

I’m in my mid twenties and have been an online marketing manager for an international retailer for the last 2 years. I’m currently finishing my online/distance degree (business major) and will be graduating in summer 2015. As this post suggests, I’m wanting a career in finance, more specifically investment banking.

My situation is:

A) After I graduate (18 months from now) I look for an opportunity to apply for a year 1 analyst position, I’ll be 27 by then with 3 years of marketing experience. How will I be viewed by potential employers?

B) I apply to a business school for an MBA after I graduate. I’ve been in touch with top tier schools about my situation who said as long as my grades satisfy their requisite, I stand a good chance.

Either route means I’m looking to reach associate level at the age of 30. I feel I’ve wasted so much time already and now that I know what field I want to work in, I don’t even want to waste another 24 hours.

What do you feel is my best route of action?

On a side note, would you recommend any specific books on M&A? From my knowledge of it so far I’m definitely feeling more inclined toward this business area.

– You maybe a bit older than most first year analysts. If you haven’t had any experience in IB, you’ll have to convince them why they should hire you over others who are younger with the relevant experience.
– Yes going to a top tier MBA will help you quite significantly especially if you want to switch careers in finance; I believe this maybe the best plan
– 30 as an associate is slightly older than most but it is acceptable, especially in this economy
– Specific books – http://www.amazon.com/Investment-Banking-Valuation-Leveraged-Acquisitions/dp/1118656210/ref=pd_sim_sbs_b_6

If you wish to work with M&A at an Investment Bank, correct me if I’m wrong:

You’re applying for the Investment Banking division within the Investment Bank. Initially you will do a lot of modelling to determine prices and send your findings to senior management who will then discuss that with customers. At this level a good analytical and quantitative background is helpful.

As you progress and become responsible for dealing with clients and brining in business for your firm, your main qualities are dealing with people and being able to convince clients that your firm is offering the best service.

If you are applying for an internship, do you say Investment Banking and M&A?

Additionally, how do bonuses work for non-senior people in M&A? Is it just basically a small % of the revenue on the deals they worked on or generated? Roughly, how do salaries and bonuses for people in the M&A area of the bank compare with the other divisions?

1st paragraph: Yes you do lots of modeling and pitch books. You generally present your findings to associates who will then present your findings to VP, then senior management. Sometimes senior management may not necessarily know who you are.

4th paragraph: No, it depends on your performance (group’s evaluation of you/how much your senior likes AND wants to keep/remove you), as well as your group and division and firm’s performance. I think salaries for IBD are generally higher than most divisions (other than S&T, PWM – assuming you are bringing in big orders/clients) http://www.mergersandinquisitions.com/investment-banking-salary/

This was a great article. I’m going to play the fool here, but why is there so much enigma around M&A as it doesn’t seem that much different from being an estate agent or a recruitment consultant, etc. Your client has a need your other client has a need and you match this up. Sounds like you need more people skills and commcial intelligence than mathematical skills. A job in M&A sounds like a lot of fun.

It’s not. The main difference is that you can make a lot more money at the senior levels since you’re selling assets worth billions / tens of billions of dollars. People skills – sort of, yes, but analytical skills are still important especially at the junior levels.

I am currently an undergrad student studying business management at a respected school with a minor in Economics. My degree I am going get next year though is not in finance or accounting. I am very well read on the economy, finance, and everything that is important in the Investment Banking industry. How do you suggest I pursue breaking into the industry? I’m not from the ivy league but I’m smart and passionate about becoming an investment banker.

In M&A how much of work is related to competitive analysis,strategy evaluation (or market analysis) etc.I know most of the work is related to valuation,pitching,negotiations,Due Dili etc but companies do M or A for strategic reasons for eg to gain an edge over your rivals or buying out your nemesis or for regional/geographical penetration.
So do bankers look at these panoramic aspects or are just into usual stuff?

Suppose there is a company which is into manafacturing and selling of products , but my operations are only in big cities like NY,Chicago etc.There is another company(same line of business) which does well only in small places(or the not so glamorous ones) like new hampshire,nebraska,arkansas etc.

So if the former wants to acquire the latter for entering the tier 2 or tier 3 places(geoprahical penetration) , the viability,strategy,market research etc also needs attention? Do bankers look at these points?

I have a question about pitching M&A deals you have worked on during internships. Using your resume template its:
[VALUE OF DEAL] + [DESCRIPTION OF THE TYPE OF COMPANY]
– what you did e.g. model/pitchbook etc
– outcome e.g. 2-3% overvalued
However, during interviews, how do you pitch the deal? Because isn’t it a repeat of what you wrote on your resume?
Also often I am asked what’s happened to the deal i.e. is it still going ahead. More often then not I don’t know because senior management don’t mention it, or have meetings and don’t talk about it (esp in boutiques where you are not really ‘assigned deals’ but jump in). If you don’t know what should you say?
Sometimes I know its been put on hold (because the company couldn’t pay the fees once! haha) and say that but then they dismiss it as deal experience. :( What should I do?

Okay – thanks :)
If you know the deal fell apart/didn’t go through… should you mention it even after describing what you did? I have tried it before and the bankers didn’t look happy… needless to say i was dinged.

Okay. Yea they said to me that they thought that if I was building the model etc then for the company to back out of the deal was pretty poor. I agreed but explained why they did it (one company couldn’t even pay us the fees because they were in so much debt!) but then the bankers seem to look down on the work i did… :S But I see what you mean… focus on the strengths of the deal/what I learnt vs the negative aspects.

Question: what role do bankers play in mergers … where neither company is acquiring the other, no money changes hands, but rather two companies are combining into one and the argument is over how much each company is worth before the merger to determine the allocation of shares post merger.

I would imagine that bankers from both sides do modeling work for their client, but other than that is there anything else? do they do the negotiating in their client’s name? are they key to getting the two sides to come to an agreement?

I am an Intern in an investment management firm focusing on buy-side M&A. I am responsible for making Presentations and Creating and maintaining Valuation model for a couple deals. I also have some exposure to other areas such as asset allocation, product development and Risk management. My question is: Does this experience helpful if I am looking for a sell-side M&A job in Investment Banks?

I don’t really understand why financial modeling doesn’t play a significant role in the deals. How is the bank a value addition to the client if (or put differently, how is the bank able to appropriately pick a worthy seller) if no serious number-crunching or modeling work is done?

Yes you need good solid modeling work, but most banks can do that. Bank’s value add isn’t simply the models but its relationship w the client & ability to fulfill the client’s needs (be it financing needs etc) What Brian meant was yes there is modeling work to be done, but less than what people think. There’s a lot of admin work etc too.

Hi Brian,
I would like to ask you a curiosity: what would you say if you’d have to esteem a percentage of what analysts do?
Because for what I’m reading and learning on your site is something like 80% is powerpoint presentations and 20% or less on financial modeling? It seems that you just make a little data entry and the powerpoint like a desperate ninja

Ok, one question should you be kind to explain. How you find potential ‘acquisition’ candidates, I’m not sure if Bloomberg, Thomson One or Capital IQ provide you the prospects with a click of button. Is there way to ascertain who could be a potential acquisition or who not ..?

I must say, you got natural talent of putting things across in a simple yet real manner as they happen in the market. You are fantastic, and I’m glad to have this opportunity to see your writing. Of course, its learning ..cheers, G

You mentioned the bidder list had research against each bidder which you keep updating – What are some of financials you track for each bidder ? Also is the research done using public websites (Yahoo finance for example ?)

Sometimes MDs are just too busy to respond; just because he doesn’t respond doesn’t mean he doesn’t like your work. Id suggest you to email him for coffee – tell him you want to know what he thinks about ur progress so far and you appreciate his feedback. If you want more work (why??) ask your staffer or your MD – this is why i suggested u to grab coffee w him

Can you help me making a resume for experience in mergers and acquistions when I have no experience of it. I went abroad but didnt really real stuff for it except for translation from french to english of their books to potential buyers.I need help in convincing the big 4 here that I did something substantial.

I have a question that I’m not sure you’ll really have an answer for, but I wanted to throw it out there anyway.

First and foremost, I wanted to say thank you so much for maintaining such an excellent site. I 100% credit M&I’s advice for landing me my FT IB position.

In regard to my actual question, it relates to my Analyst role at the Boutique where I’m employed. It’s not a traditional analyst role in that I’m not an Excel jockey nor am I cranking pitchbooks 24/7 — I’m actually spending the majority of my time sourcing and speaking with CEOs. I’d say the split is 60/40 between sourcing and execution. Based on your article about promotions in banking and what each position actually does, I’d say what I’m actually doing falls more under the title of VP (regarding the heavier focus on bringing in clients). Granted, there is a STEEP learning curve being thrown into the mix right out of school and being expected to make contacts, maintain relationships, and eventually sign clients, but I definitely like the sourcing focus. Also, compensation is structured accordingly — the more prospects I source that turn into clients, the higher my bonus.

I guess my actual question, as nebulous as it is, is how do I make the most of this/what thoughts do you hard regarding this model/experience? Also, I’m posting this in the M&A section because my firm strictly does M&A work.

I would also be happy to be interviewed for an article regarding my experience (working at a boutique, culture, pay, recruiting, etc.). It’s certainly been interesting so far…

You should tell them what you actually did as that work will be more impressive than modeling anyway. You can say you also learned technical skills on the side etc. and taught yourself since it will come up but what you just outlined is fine

I have got a interview at the M&A team at Lazard. Laz sounds like the granddaddy of M&A industry, so is there any difference in the way of doing M&A between the boutiques like Laz and bulge bracket like Morgan Stanley?

so if client comes to investment banking firm and says “We want to buy a company. Help us finance it?” then do investment bankers finance by sourcing it to PE firm or do invesment bankers go to bank? Also, what is the difference between merchant bank and investment bank?

Hey, thanks for great answers. I was also wondering if it is possible for fresh college graduate to land a M&A analyst job. I heard that you need 1~2 years of experience in finance to apply for one. Is that true?

Brian,
I think first question can be specific to a particular industry or region or deal size. Because in India i have seen acquisitions funded through debt as well as PPE finance, mix of both in most cases. Of course deal sizes were way lower and maybe acquired company was bought without significant premium. What do you think?

Not clear on exactly what you are asking, but bankers = agents, they just find capital or buyers and earn a fee on it. PE = principals, they put their own money at stake. Sometimes you do see firms that combine the two, especially in emerging markets.

In order to get into M&A, should i go for a business degree majoring in finance, bachelor’s in accounting or a bachelor’s in economics. Which subject would be most ideal if i would like to work in the M&A department of investment banking. Thanks.